Qatar’s Irrational Decision To Leave OPEC

OPEC’s future is once again up in the air, if we should rely on the first assessments in the media, of the decision by Qatar to leave the oil cartel on January 1 2019.

Saad Al Kaabi, Qatar’s minister of energy, stated to the press that Doha will leave OPEC, as Doha wants to concentrate its investment and political efforts on natural gas. The first reactions in the media shown a tendency of looking for new reasons for the demise of the oil cartel. Qatar, as one of the first members to leave OPEC is seen as a new rift inside of the organization. This assessment, however, is build on wrong assumptions and is not taking into account the already existing rift in the cartel.

The future of OPEC is not in doubt, some even could argue that the future at present is brighter than it was the last couple of years. The oil cartel always had to deal with internal discord or even outright clashes, such as the diplomatic rift between Iranian hardliner Ahmadinejad backed by Hugo Chavez and Saudi Arabia during the 3rd OPEC Heads of State Summit in 2007. The oil cartel survived these conflicts, and recovered. The Qatari decision to leave will not put a dent in the shiny armor of the group, as Doha’s oil production is insignificant compared to some of its more influential peers within the cartel. Qatar’s future is natural gas, with a primary focus on LNG exports.

Most of Qatar’s crude oil is produced at the offshore Al-Shaheen field, developed in conjoint with Danish oil independent Maersk Petroleum. This oilfield, which for years, has been a technological showcase due to its extended multilateral drilling, setting new world records, has however been hit by technical challenges, such as scaling and slugging. The current owners are fighting an uphill battle, which might not yield the expected results. Qatar’s oil future was already very cloudy, and by leaving OPEC, Doha seems to be throwing in the towel. Related: Qatar Quits OPEC

Still, Qatar’s move does not seem to be a very rational one. As one of OPEC’s most vocal members, Qatar had a say far beyond its real economic or military capabilities. By shaping OPEC strategy, Doha played a pivotal role. Leaving OPEC will immediately result in losing this influence. Shifting focus from OPEC to maintaining its status as LNG powerhouse is maybe economically more rational, but could end up costing it geopolitical leverage. Except for Russia, ‘gas geopolitics’ is not a real power factor taken into account by global powers or military strategists. Being part of the ‘decision-making’ group within OPEC is most of the time the key to the White House, the Kremlin or Brussels. Having an insight and a say at the table of OPEC ministers brings enough power to act beyond reality.

The question remains why Qatar has made this decision. Again, until insiders will give the background and rationale of this decision, we all will have to guess. Some indicators for this Qatari move can already be addressed. Since the start of the Saudi Alliance clash with Qatar, the minister of oil and his delegation have almost become outcasts at OPEC meetings. The last meeting in Vienna made it clear that the majority of OPEC ministers would not openly talk to their Qatari and Iranian counterparts. Walking through the rooms and corridors of the meeting hall in Vienna, the fallout of the clash was visible. This ongoing open conflict is most probably one of the reasons for Qatar to leave the cartel. And don’t underestimate the negative effects of cultural pride in rational decision-making processes. After a long period of prominence (Al Attiya), Qatari ministers were removed from the spotlights.

Another reason could be a totally new strategy set in place after the reshuffle of the Qatari government, including the minister of energy position. No real insights yet have been given on the real background, only the usual diplomatic Arab standard phrases have been used in the media. A possible reshuffle and power struggle in the Qatari power structures around the Emir have been behind it too. Related: Oil Jumps On Trump-Xi Trade Truce

The coming days more will become clear. Analysts should keep an eye on the position Qatar will take in Vienna at the OPEC meeting. At that moment Doha is still full member, which should give it a say in all matters. One of the most interesting things will be the relationship between Qatar and Iran, and whether this is a symbiosis or open love-relationship. Iran and Qatar are also linked strongly in a possible global gas power structure, currently called GECF.

The Qatari decision will for sure have put some pressure on Tehran too. Losing another pro-Iranian power broker in the Saudi led oil cartel, which could even expect Egypt and others to join very soon, will put Iran fully in a corner. Improving Saudi-Russian are another major slap in the face of Tehran. Russia’s gas power politics, combined with OPEC interests, could be a deadly threat to Qatari LNG dreams in the future.

OPEC’s future is not threatened, as possible destabilizing factors are either removed or have made their own choice to leave. The Vienna meeting however will still be very interesting to see whether Doha decides to leave with a real bang. Saudi Arabia and Russia, supported by the UAE will have no problem weathering the storm.